Quotes

LONDON Feb 28 (Reuters) - Keeping the lights on and the
country warm must be the first and over-riding priority for
Britain's gas and electricity utilities, as well as its energy
market regulator, and ministers at the Department of Energy and
Climate Change (DECC).

If they cannot meet reasonable gas and electricity demand
they must be replaced by other institutions and leaders who can.
Failure is not an option.

For almost 40 years, Britain's state-owned Central
Electricity Generating Board (CEGB) ensured power was available
at the flick of a switch. Nationalised companies did the same
for gas.

Britain's power and gas industries have an enviable record
of reliability. The country has avoided the massive rolling
power failures that blacked out huge swathes of the United
States eight times since 1965, leaving millions of customers
without power, some for days at a time.

Power quality characteristics like voltage and frequency
have been controlled within tight limits which are the envy of
the world. The overall reliability of supplies for the national
electricity transmission system was 99.99954 percent in 2011/12,
according to National Grid, which operates the network ("Report
to the Gas and Electricity Markets Authority" Sep 2012).

Discretionary voltage reductions, common in the United
States as a last-ditch attempt to manage power demand and
distribution when the system is struggling to cope, are rare in
the United Kingdom, though voltage control worsened noticeably
in the south of England in 2011/12.

Gas supplies have been delivered with similar
professionalism. The country has safe, reliable and widespread
availability of natural gas for cooking, heating and industrial
users as well as power generation.

SHRINKING CAPACITY MARGINS

Reliability has been maintained at impressive levels
following the privatisation of both industries in the 1980s.

So it is depressing to hear Sam Laidlaw, chief executive of
Centrica, one of the country's largest power generators and gas
producers, as well as a supplier to 12 million homes through its
British Gas subsidiary, warn that it might not be able to keep
the lights on.

"We think by 2017-18 we're going to see reserve margins
become uncomfortably tight, which means you'd have load shedding
[rolling blackouts] at certain times of day if you have nuclear
or other outages," Laidlaw told the Financial Times ("Centrica
raises power cut fears" Feb 27).

Laidlaw told the Financial Times Centrica would only make a
final decision on building new gas-fired power plants if it won
a capacity auction scheduled to take place in 2015, with the
first power plant not entering service for at least two more
years, in 2017.

"The investment will start when the legislation is complete
-- so that's between a year-and-a-half and two years from now,"
Laidlaw said. "But it's not actually going to start delivering
power for two years after that."

Laidlaw is only echoing concerns already been raised by the
Office of Gas and Electricity Markets (Ofgem), the regulator.

"Four years ago, Ofgem's Project Discovery report outlined
how the combination of the global financial crisis, along with
tough environmental targets, and the forced closure of ageing
coal and oil power stations would provide a unique challenge for
securing electricity supply from 2015 to 2020," Ofgem Chief
Executiev Alistair Buchanan wrote in an article contributed to
the Daily Telegraph newspaper this month ("Keeping Britain's
lights on will come at a price" Feb 19).

"Our report to the government published in October last year
... confirmed this prognosis but with even more alarming
warnings," Buchanan wrote.

"National Grid has managed one-off shortages in the past in
a professional way. It will face a tougher challenge over the
next few years because of the possibility of a prolonged lack of
spare power station capacity."

Capacity is already so tight that this winter National Grid
was forced to turn to the super-expensive oil-fired power
station at Fawley, to keep the lights on for a million homes,
after unplanned outages amid cold weather put the system under
strain.

Buchanan warned of a "roller coaster" ride ahead for
customers. "(The Duke of) Wellington described (the battle of)
Waterloo as a close-run thing. Let's hope that, in the battle to
keep the lights on, these measures ensure it isn't too close."

Laidlaw and Buchanan are two of the senior leaders who are
directly responsible for keeping Britain's gas and electricity
supply reliable and affordable. Yet both speak as if the problem
really belonged to someone else.

SELF-INFLICTED WOUND

Ofgem often implies Britain is the victim of forces beyond
its control. But the real problems are self-inflicted.

The United Kingdom has been an enthusiastic supporter of
ambitious targets for generating more electricity from green
sources like wind, but the government has not given adequate and
timely thought to how to provide the spare gas-fired capacity to
provide backstop power supplies when the wind does not blow.

As part of the European Union, Britain has signed up to the
Large Combustion Plant Directive, that will force most
coal-fired power plants to close by 2015, without planning
properly for what will replace them.

The government banked on a new generation of nuclear power
plants but so far failed to persuade the power companies, though
either price incentives or regulatory requirements, to build
them.

Utilities will not build new gas-fired plants unless the
government guarantees them capacity payments to make up for the
fact that they will only operate for a few hundred hours per
year to backstop wind generation.

It would be easy to blame the government's enthusiasm for
renewable energy for lack of realism. But other power markets,
including California and Germany, have successfully integrated
an even higher share of renewables onto their grids without
running out of spare capacity. Both are now struggling with how
to cope with too much generation, not too little. No one is
worried about the lights going out in San Francisco or
Stuttgart.

Britain's problems are the result of a bumbling approach
characterised by dithering and delay. The government, Ofgem and
the utilities have been aware for years that Britain has a
looming power gap. But the response has been far too slow and
showed a lack of determination.

Laidlaw's and Buchanan's comments are an attempt to inject
some urgency into the decision-making process by upping the
pressure on ministers and parliament to get on with reforming
the current energy market to provide capacity payments and other
forms of price support to gas and nuclear generators to maintain
grid reliability.

But threatening to turn the lights off with rolling
blackouts is a very bad advertisement for the state of relations
between the country's power providers, regulators and the
government. Customers have every right to expect better.

If the lights and the heating go off in the middle of
winter, while nearly 20 oil and coal-fired power plants dot the
landscape dark and unused, and the windmills are not turning
because the weather is still, Britain will face not just an
energy crisis but a political crisis that will rock both the
government and the utilities to their foundations.